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Page2 Slide 2 Copyright Texas Education Agency, 2014. These Materials are copyrighted and trademarked as the property of the Texas Education Agency (TEA) and may not be reproduced without the express written permission of TEA, except under the following conditions: 1) Texas public school districts, charter schools, and Education Service Centers may reproduce and use copies of the Materials and Related Materials for the districts and schools educational use without obtaining permission from TEA. 2) Residents of the state of Texas may reproduce and use copies of the Materials and Related Materials for individual personal use only, without obtaining written permission of TEA. 3) Any portion reproduced must be reproduced in its entirety and remain unedited, unaltered and unchanged in any way. 4) No monetary charge can be made for the reproduced materials or any document containing them; however, a reasonable charge to cover only the cost of reproduction and distribution may be charged. Private entities or persons located in Texas that are not Texas public school districts, Texas Education Service Centers, or Texas charter schools or any entity, whether public or private, educational or non-educational, located outside the state of Texas MUST obtain written approval from TEA and will be required to enter into a license agreement that may involve the payment of a licensing fee or a royalty. For information contact: Office of Copyrights, Trademarks, License Agreements, and Royalties, Texas Education Agency, 1701 N. Congress Ave., Austin, TX 78701-1494; phone 512-463-7004; email: copyrights@tea.state.tx.us. 2 :
Page3 Slide 3 What is Credit? 3 Allow students to brainstorm the definition of credit. :
Page4 Slide 4 What is Credit? A term used to describe any situation in which goods, services or monies are received in exchange for a promise to pay a definite sum at a later date. 4 Credit allows you to borrow money to obtain goods or services in exchange for a promise to pay a definite sum at a later date. :
Page5 Slide 5 Credit Card vs. Debit Card 5 A credit allows you to borrow money to obtain goods or services, while debit cards use the funds available in your bank account. :
Page6 Slide 6 Credit Statistics According to First Command Educational Foundation: 862 million credit cards and debit cards in the United States 20 % of American have maxed out their credit cards Typical household has an average of $8400 in credit card debt and pays $83 in interest each month Average college student has $3200 in credit card debt 6 Many Americans carry credit or debit cards in their wallets. It is the most used form of payment due to its ease of use. :
Page7 Slide 7 Pros and Cons of Credit 7 Although it may be extremely easy to swipe a credit card, it can also have negative aspects. :
Page8 Slide 8 Pros of Credit Convenience No cash to carry Online and phone orders Establish credit Emergency situations 8 Credit cards can be good for many reasons. It is extremely easy to use, and there is no need to carry cash with the convenient card. You can use it for online and phone orders, whereas you cannot with cash. Credit cards can be used to help establish credit or in emergency situations. :
Page9 Slide 9 Cons of Credit Overspend Finance charges Late payments Debt Interest payments Non-payment Possibility of identity theft 9 However, because it is so easy to just swipe the card, it can lead to overspending because you do not realize how much you are spending when you just swipe. There can also be unforeseen finance charges and fees you do not think about when swiping a credit card. You may receive a very unpleasent surprise when you receive your credit card bill! :
Page10 Slide 10 Pros and Cons of Credit Think, Pair, Share Think about the Pros and Cons of Credit Turn to you neighbor Share your thoughts Lets compare your thoughts with what financial experts have discovered.. 10 At this time, turn to your neighbor and compare and contrast using credit cards. What other positives or negatives can you think of that were not listed on the board? Slide 11 Character 4 C s of Credit Creditworthiness, demonstrated by consumers history of making payments and responsible use of credit Capacity Amount of debt a borrower is able to handle Capital Valuable assets such as real estate, savings, or investments that could be used to repay credit debts if income is unavailable Collateral Assets pledged as security for a debt 11 :
Page11 Character, capacity, capital and collateral are all needed in order to establish, create and maintain a good credit score. A high credit score is needed when searching for an apartment or house because it helps ensure you will be able to make your payments to the credit lender. A good credit score can also mean better job opportunities because it lets employers gauge your responsibility and character. Lower interest and insurance rates are also given to individuals with higher credit scores. :
Page12 Slide 12 Types of Credit Single Payment - Items and services are paid for in a single payment, within a given time period. Interest is usually not charged.. 12 An example of a single payment credit might be a one-time credit card charge for a utility payment online. :
Page13 Slide 13 Types of Credit Installment Credit - Paid in two or more scheduled payments for a set amount. Interest is charged. 13 An installment credit example would be if you purchased a new living room set on credit at the furniture store. If you pay a down payment for the living room set, then pay two more payments, plus interest, then it would be considered an installment credit. :
Page14 Slide 14 Types of Credit Revolving Credit - Items purchase must not exceed the set credit limit. Payments are made on regular time intervals. Interest is charged based on the remaining balance. 14 Revolving credit continues at regular time intervals, such as an auto payment or mortgage payment. Interest is charged on this type of credit payment and is based upon the remaining balance of the account. :
Page15 Slide 15 All About Interest Money paid regularly at a particular rate for the use of money lent, or for delaying the repayment of a debt. Annual Percentage Rate (APR) Cost of the loan on a yearly rate, expressed as a percentage. Grace Period Additional time allowed to make a payment before it is considered late Increases the actual cost of the item 15 Some Americans can get into trouble when they purchase items or services on credit because they do not pay attention to the interest rate or do not figure the interest payment into the actual cost of the item or service. This can make the final cost of the item or service much higher than the original cost, if it were paid for in cash. :
Page16 Slide 16 Obtaining Credit Establish a relationship with a bank by setting up a checking account Complete an application for approval for a credit card If not approved, determine why you were denied Try obtaining credit with a department store to establish credit Ensure your credit limit is within your financial range and you will be able to make the monthly payment 16 Obtaining credit is easy to do. You can open a checking account, apply for a credit card or apply for a department credit card. Whichever option you choose, make sure you make monthly payments that are within your budgeted financial range. In the lesson, Creating My Lifestyle Budget, we will discuss the importance of budgeting for credit card payments as well as rent/mortgage payments, utilities, transportation, groceries and more. :
Page17 Slide 17 Determining Your Credit Limit Total debt should not be more than 20% of your yearly income Example: $6000/year x 20% = $1200 Total monthly payment should not exceed 10% of your monthly income Example: $500 x 10% = $50 17 Your credit payments should never be more than 10% of your monthly income. This means that your total debt should be no more than 20% of your yearly income. :
Page18 Slide 18 Questions? 18 Copyright Texas Education Agency, 2014. All rights reserved. :
Page19 Slide 19 Resources and References Images: Microsoft Office Clip Art: Used with permission from Microsoft Websites: Consumer s Guide: Credit http://www.federalreserve.gov/creditcard Federal Deposit Insurance Corporation FDIC Article - Debit vs. Credit Cards: How They Stack Up http://www.fdic.gov/consumers/consumer/news/cnfall09/debit_vs_credit.html Financial Literacy Now http://www.financiallitnow.org/index.shtml What s My Score? http://www.whatsmyscore.org The New York Times Money Guides: Debit and Credit Cards http://topics.nytimes.com/your-money/credit/credit-and-debit-cards/index.html 19 :
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